THE UPCOMING GLOBAL RECESSION

FOLLOWED BY COVID 19 AND BD RMG

Syeed Towheed
Economics 101

1
 Executive summary

None can sugarcoat the economic impact of Coronavirus disease namely COVID-19, it is ugly, but it is true. It
might not take us to the stone age, but it is certainly as bad as the 2008 financial crisis or what some experts
fear - the Great Depression of the 1930s. This paper will dive deep to discuss the current impact on the
global economy how Corona virus causing a recession, the status of the fashion industry, breakdown of
Bangladesh RMG markets and the way forward for Bangladesh RMG in length as to see if there are any hint
of light at the end of the tunnel.

Recession is a regular economic phenomenon which hits the world frequently after every 100 years and it
heals as the time passes by. The longer it takes to resolve the more damage it will do. But this is different
because the cost of people live are non-returnable, and the health crisis could pose even greater threat after
the initial bump on economy. The biggest economies, US, UK, Germany, and China have taken measures to
restore the balance in GDP and the RMG based economy of Bangladesh will be able to get back on its feet.

The great depression of 1930s does remind a time of hunger and poverty but in the same way it a sign of
hope for the people of the world. Economy does not stand on the money rather the foundations on an
economy are policy and people. Reviewing the recent events of the US, UK and Germany it can be presumed
that the effect of recession will be a “U” but for a developing country like Bangladesh the effect appears to
be a “W” as the economy will take some time to heal of the scratches of Coronavirus as long as they make
short time and longtime plans, provide funds to the garment manufacturers to increase efficiency and
source more raw materials, taking the calculative risk, before demand is skyrocketed and motivate the
people to work according to the plan.

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 Table of Contents
Executive summary ............................................................................................................................................. 2
A lesson from History .......................................................................................................................................... 4
The Great depression of 1930s ....................................................................................................................... 4
The Financial Crisis of 2008 ............................................................................................................................. 5
Why coronavirus Recession is different than any other ..................................................................................... 6
Breakdown of Bangladesh RMG markets ............................................................................................................ 7
US prepares from another recession............................................................................................................... 8
Coronavirus hit UK after BREXIT Deal.............................................................................................................. 8
Can Impenetrable German Economy withstand its glory?.............................................................................. 9
What happens to consumer behavior at the time of recession? ...................................................................... 10
The status of the fashion industry ..................................................................................................................... 11
The way forward for Bangladesh RMG.............................................................................................................. 12
Trump Announces $2 trillion to the rescue ................................................................................................... 12
UK government will bear 80% cost salaries to the native organization ........................................................ 13
Germany reopens from 04th May .................................................................................................................. 13
Bangladesh’s Tk72,750 crore incentive package ........................................................................................... 13
Verdict ............................................................................................................................................................... 14
References ......................................................................................................................................................... 16

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A lesson from History
The history of recessions in the United States shows that they are a natural, though painful, part of the
business cycle. The first recorded recessions were on 1797, followed by the liberation of the US and
deflation in Europe caused the global economy to crash. After that the US emerged as the face of world
economy. Fast forward about 130 years and the come across to the great depression in 1929.

The Great depression of 1930s

If we look back to 1932, the time of great depression: one of five Americans had lost their jobs. The 32nd US
president Franklin D. Roosevelt came to power and the first thing he did was to close all banks for 4 days
followed by a 100 days agenda which included – initiating federal deposit insurance corporation,
administrating the securities and exchange commission, staring new hydroelectric power plant all of which
were legendarily known as the ‘New Deal’.

U.S. GDP in 1930s

$1.40

$1.20

$1.00

$0.80

$0.60

$0.40

$0.20
10.80% 12.90%
8.90% 8.00%
5.10%
$0.00 0 -1.20% -3.30%
1929-8.50%1930-6.40%1931
-12.90%1932 1933 1934 1935 1936 1937 1938 1939
($0.20)

Nominal GDP (trillions) Real GDP (trillions) GDP Growth Rate

F3 - U.S. GDP in 1930s

By doing these he managed to make jobs for 8.5 million unemployed Americans and delivered the Social
Security act on 1935 by which scheme the poor an unemployed and the physically challenged people started
getting to live and food cost. And the result shows strong numbers, eventually the GDP of US did grow by
10.80% on 1934, by the year 1938 when the depression ended, they were -3.3% and it rose to 8.0% at the
end of 1939.

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The Financial Crisis of 2008
After 9/11 of 2001 global economy was hit hard again on 2008 and it occurred despite the Federal Reserve
(Fed) and Treasury Department's efforts to prevent it. The crisis led to the Great Recession, where housing
prices dropped more than the price plunge during the Great Depression. Two years after the recession
ended, unemployment was still above 9%, and that is not counting discouraged workers who had given up
looking for work.

U.S. GDP 2006 - 2019

25.000 4.00%

2.90% 2.90% 2.90% 3.00%

20.000 2.60% 2.50% 2.40%
2.20% 2.30%
1.90% 1.80% 2.00%
1.60% 1.60%
15.000 1.00%

10.000 -0.10% 0.00%

-1.00%
5.000
-2.00%
-2.50%
0.000 -3.00%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Nominal GDP (trillions) Real GDP (trillions) GDP Growth Rate

F4 - U.S. GDP 2006-2019

The first sign that the economy was in trouble occurred in 2006 when housing prices started to fall. At first,
realtors applauded because they thought the overheated housing market would return to a more
sustainable level. They did not realize there were too many homeowners with questionable credit and that
banks had allowed people to take out loans for 100% or more of the value of their new homes.

Again, another democratic president comes to the rescue of Americans. The American Recovery and
Reinvestment Act of 2009 was a fiscal stimulus signed by President Barack Obama on February 17, 2009. It
ended the Great Recession in July 2009. Congress passed the bill based on President Obama's plan to put
$787 billion into the pockets of American families and small businesses. That would boost demand and instill
confidence. It was a necessary follow-up to President George W. Bush's plan, the Troubled Asset Recovery
Program. TARP ended the 2008 financial crisis by bailing out large banks.

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Why coronavirus Recession is different than any other
The coronavirus pandemic is putting an end to the longest economic Expansion in the US history. “We are
going to a global recession” Recession in next quarter or two are inevitable it's because many of the
business are shutting down and Millions of people Remain home, factories are closed and business being
shut down. entire parts of the US economy are at a complete standstill. This is an extraordinary disruption. It
is almost like a meteor hit the entire planet and we have to now deal with the fact that we have been
knocked off of our axis. The Federal Reserve and the Congress are taking extraordinary steps to try to keep
the economy afloat. Still economist warn this recession will be unlike any other downturns in Recent history.
Because it was spawned by health crisis not to by an unhealthy economy. We may well be in precision but
again I would point to the difference Between this and normal rescission. There is nothing fundamentally
wrong with our economy – That is how CNBC put to describe the present situation.

According to Oxford Economics:

1. The coronavirus pandemic will lead world GDP to shrink by about 7% in H1 2020, roughly double the
scale of contraction seen during the global financial crisis
2. For Western economies currently in lockdown we expect restrictions to start to be lifted in Q2,
leading to a sharp resurgence in activity in H2. But despite this rebound, we project that world GDP
will shrink by 2.8% in 2020 overall – in 2009, the global GDP fall was 1.1%
3. The H2 pick-up, followed by a return to more normal conditions next year, will result in world GDP
growth rising to almost 6% in 2021. But the severity of the coronavirus shock is likely to lead to a
permanent output loss for the global economy

In technical terms economies enter a rescission After two consecutive quarters of negative GDP growth.
Now the year's government is not scheduled to release first quarter GDP data Until the end of April and
second quarter data until July. So it will be awhile before the official verdicts come in. But many comics are
already predicting double digit decline in GDP Growth in the second quarter of the year. Lets

6
Breakdown of Bangladesh RMG markets
Bangladesh have a unique economy with over 72% of their export revenue comes from readymade
garments. As Coronavirus takes the world by storm, BGMEA chief reports the cancellations are piled up to a
staggering number of $1.98 billion. When we look at the market of RMG for Bangladesh we see the biggest
market are US, Germany and UK followed by Spain, France, and Italy. The US just is not the biggest
destination for Bangladesh they manufactured a growth of 3.1% and being the biggest economy in the world
they always play a role to the shift of world economy. But unfortunately, that is the case before Coronavirus
outbreak.

Main Apparel Items Exported from Bangladesh

(Value in Million USD)

USA

Germany

U.K.

Spain

France

Italy

Poland

Canada

Japan

Netherlands

0 1000 2000 3000 4000 5000 6000 7000

2019 2018 2017

F2 - Main Apparel Items Exported from Bangladesh

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US prepares from another recession
The Chief US Economist of JP Morgan, Michael Feroli says – “The biggest quarterly decline we have seen an
annualized GDP growth was in 1950 and that was 10%. Most estimates now are for well over 10%. This is
probably going to be the worst we have ever seen” The first indication of the recessions is the job market.
Let us see the F1 – of initial unemployment insurance claims since 2000 which indicates an “U” effect of
recession on US economy.

Initial unemployment insurance claims since 2000

(in million)
7

0
2000 2005 2010 2015 2020

F1 – US initial unemployment insurance claims since 2000

Coronavirus hit UK after BREXIT Deal

Let us look at the other economic behemoth that is the UK. The UK were already going through a tough time,
considering the BREXIT. The nation has gone through three changes of Prime minister to find a deal with the
EU. Right after that they are forced to shut down one quarter of companies because of the coronavirus
lockdown and the majority of those still operating have reported lower turnover, according to the Office for
National Statistics. This shows a sign of “U” in their Economy.

UK Job vacancies (in thousands)

120

100

80

60

40

20

0
Jan-20 Feb-20 Mar-20 Apr-20

F5 – UK Job vacancies

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Universal credit applications have rocketed since the lockdown. Figures from the Department for Work and
Pensions show 500,000 people applied for universal credit, the government’s main welfare benefit, in the
last two weeks of March. This was followed by an additional 250,000 in the first week of April. The normal
number of job vacancies are 100 based on observations from 2019.

Can Impenetrable German Economy withstand its glory?

A nationwide testing, meticulous tracking of the virus Trajectory and a large number of ICU beds could result
off being very low numbers off affected in EU for Germany. Chancellor Angela Merkel is reopening schools
on 4th May, though the large number of groups can gather is limited to two and all the gatherings are hold
until August. After the 2nd World War Germany had experienced their worst economic collapse so they have
prepared better. After the war, every working German stared saving and till date each of them has 30% of
their earning as savings. However, they are too a victim of Coronavirus.

In their central outlook with activity "normalizing over the summer", they forecast a 2.8 percent drop in
gross domestic product (GDP) in 2020, followed by a 3.7 percent expansion next year. But a deeper "V" due
to widespread halts in production or a longer period of isolation to slow the virus' spread could bring a 5.4
percent slump, followed by growth of 4.9 percent in 2021. In the still-more-damaging "U" scenario, with
contact restrictions lasting "beyond the summer" and economic recovery setting in only next year, GDP
might fall 4.5 percent in 2020, but add just 1.0 percent next year, the experts suggested – reported by the
Jakarta post.

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What happens to consumer behavior at the time of recession?
Now, Forbes had shaded some lights on how one should prepare for a recession. It is a mixture of reducing
cost and investing at the right time.

Assess: Understanding how this will affect your sector is the key to surviving

Revisit your Value Proposition: Does your service help reduce the cost of a major investment?

Invest: Rather than straight price-cutting, which can trigger a competitive response and have
other negative consequences, look for alternatives.

Re-evaluate Luxury: Repositioning luxury offerings to these different aspects of value can
help you retain customers who might feel social pressure to cut out luxury

Look for Opportunities: Brands can also launch new offerings to smaller customer segments,
and grow these new businesses gradually with less fear of knockoffs.

Use the Lull: Try to pursue projects that you’ve wanted to do but were too busy to consider.

Acquire: Your brand can acquire new technology, patents, market segments or even complementary
brands in a recession that would be unavailable or unaffordable during an expansion.

And the wealthiest 10% of Americans actually increased their share of wealth during the Great depression.
So even it is a turmoil there are gainers and if money is saved and invested correctly and as conscious as
people are there will be a good percentage of people to take the opportunity and win out this is crisis.

10
The status of the fashion industry
Luxury goods makers are anticipating significant losses due to the coronavirus outbreak, while High Street
retailers could see new collections delayed by months. The global fashion industry is worth £2tn ($1.5tn) and
it brings the UK more than £30bn a year in revenues. According to investment bank Jefferies, Chinese
consumers make up 80% of growth in the market. "It's a nightmare," said Flavio Cereda, a managing director
at Jeffries – reports BBC.

According to Textile Infomedia - the global business in apparel market is expected to reach 545 billion in
2019 and cross 600 billion in 2020 based on the growth factor indicators. Now that we look into the list of
the top 5 appeal retailers. Inditex, also known as Zara, tops the list of apparel revenue followed by H&M an
Fast retailing Co.

Top Five Largest Fashion Retailers in the World

(Revenue in $ billion)

Inditex 28.8

H&M 22.7

Fast Retailing Co 18.2

The Gap 15.9

L Brands 12.6

F6 – Top Five Largest Fashion Retailers in the World

“Across the entire industry, shops are closed, brands and retailers actually right now have an oversupply
situation with whatever orders they have placed. They fear that they may not be able to sell it, so they are
actually canceling orders or delaying shipments of orders,” said Stanley Szeto, executive chairman of Lever
Style, a Hong Kong-based garment-maker. Officials from Bangladesh highlighted the vulnerability of the
country’s 4.1 million garment workers amid a raft of order cancellations and delays. Asia is key for garment
manufacturing and many jobs in the region will be at risk, potentially causing social problems in countries
like Bangladesh, Cambodia and China that are dependent on the export economy, Szeto told CNBC’s
“Squawk Box” on Friday. More than 4,600 garment factories in Bangladesh make shirts, T-shirts, jackets,
sweaters, and trousers. The clothes are mostly shipped to Europe, the United States and Canada, to be sold
by local retailers in those countries.

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The way forward for Bangladesh RMG
Bangladesh RMG are facing a pattern of “W” which means it has got down at a sharp slope and it will
probably take few years to bounce back to its former glory. It will hurt the Governments’ plan to reach $50
billion by 2021.

Trump Announces $2 trillion to the rescue

Trump administration officials and top Democrats finalized an agreement early Wednesday morning on a
roughly $2 trillion rescue package to confront the coronavirus pandemic, the largest economic stimulus
measure in modern history.

The government will send direct payments to taxpayers

• Lawmakers agreed to provide $1,200 in direct payments to taxpayers with incomes up to

$75,000 per year before starting to phase out and ending altogether for those earning
more than $99,000. Families would receive an additional $500 per child

Unemployment benefits will grow substantially, and go to many

more Americans
• Lawmakers agreed to a significant expansion of unemployment benefits that would
extend jobless insurance by 13 weeks and include a four-month enhancement of
benefits

Small businesses will receive emergency loans if they keep their

workers
• The bill provides federally guaranteed loans available at community banks to small
businesses that pledge not to lay off their workers.

Distressed companies can receive government bailouts — but with

strings attached
• Loans for distressed companies would come from a $425 billion fund controlled by the
Federal Reserve, and an additional $75 billion would be available for industry-specific
loans — including to airlines and hotels

Hospitals staggering under the burden of the coronavirus would

receive aid
• The agreement includes $100 billion for hospitals and health systems across the nation.
It also includes billions more, he said, to furnish personal and protective equipment and
increased for health care workers, testing supplies, and new construction to house
patients.

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UK government will bear 80% cost salaries to the native organization
The government will pay the wages of employees unable to work due to the coronavirus pandemic, in a
radical move aimed at protecting people's jobs. It will pay 80% of salary for staff who are kept on by their
employer, covering wages of up to £2,500 a month. The "unprecedented" measures will stop workers being
laid off due to the crisis, chancellor Rishi Sunak said. Firms have warned the virus could see them collapse,
wiping out thousands of jobs, as life in the UK is put on hold – BBC reports

Germany reopens from 04th May

The German government is already rolling out an economic rescue package worth up to €750 billion ($825
billion) that includes measures to spur lending to businesses, take stakes in companies and support
furloughed workers. The package is among the biggest launched anywhere in the world.

The Ifo report suggests the country should now create a national task force of experts and public
representatives that would make recommendations on how to ease restrictions on work and public life, and
when industries should restart production. Going back to work would be voluntary for employees.

Industries such as telecommunications and auto production that add the most value to the economy should
be prioritized, the report says, while work that can easily be done from home should continue to be done
remotely. Nurseries and schools would open relatively quickly, because young people rarely have severe
symptoms and parents cannot work if childcare facilities and schools remain closed till 04th May according to
CNN.

Germany will reopen schools in early May and allow some of the currently closed retailers to open as well,
Chancellor Angela Merkel said. Social distancing measures will stay in place – says DW.

Bangladesh’s Tk72,750 crore incentive package

Prime Minister Sheikh Hasina has announced a total incentive package of Tk72,750 crore to overcome the
possible economic impact on the country due to the outbreak of the novel coronavirus , which is nearly
2.52% of GDP – reports Dhaka Tribute.

Four programs under the work plan

•At the same time, the government also took four programs under the work plan to be implemented in
phases categorized as “immediate, short-term and long-term.”
•The four programs are to increase public spending, introduce fiscal packages, expand social safety net
programs and increase money supply in country.

Four new incentive packages

•Highlighting the key aspects of the four new packages, the premier said the first of the four packages
involves Tk30,000 crore to be provided, to affected industries and service sector organizations as working
capital, through banks as low-interest loan, reported BSS.
•She said the commercial banks would provide the amount as loans from their own funds to concerned
industries and enterprises on the basis of bank-client relations.
•“The interest rate of this lending facility will be 9%, and the concerned industries and business organizations
will pay 4.5% interest, meaning half of the interest of that loan, while the government would pay remaining
half to banks as subsidy,” she said.
•Under the second package, small and medium enterprises (SMEs) including cottage industries would get
Tk20,000 crore as working capital.

Boost production and use of local products

•Local products alongside the export sector deserve special attention and support to cope with the possible
global and domestic economic crisis caused by the pandemic.

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Verdict
Studying all the angels of the present situation the challenge can be overcome by below facts and it could
manufacture some incredible new business opportunities for Bangladesh RMG. The government and BGMEA
need to joint forces and take these calculative risks for the country to grab the opportunities.

• Food, shelter and health care needs to be

Ensuing the basic
ensured by the goverment agencies

• The goverment must ensure everone is paid

Everyone is paid
and follow up the payment

• The goverment needs to request top 10

Call for a global help importing countries for long term
pertnership

• Being depedent on out sourced cotton and

Fund and long credit policy
raw materials the govt needs to contect the
of raw materials
source coutry

• As there is no demand of cotton and raw

Fund to secure more material at the market right now the govt
cotton should allow more fund to source cotton in
advance before the demand is masimixed

• The garment manufactueres do not have the

Zero tariff on machine and luxary to spare money for tarrif, the govt
raw materials needs to take them off and request the
source country not to impose tarrif

• The garment makers need to step up the

Manufacturers should
game as there is no spare resources to waste
focus on more cost-
and there will be a massive need of basic
efficient production
products after the initial hit

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We have seen from the consumer behavior at the time of recession is to reduce cost on fancy product and
focus on the essential products. That will open a massive opportunity for Bangladesh RMG as the basic
garmenting are the strength. But the garment manufacturers need to be backed by the government. The
government needs to pick up the thread of conversation to the buying countries and retailers for long term
commitment; also they need to request the countries the manufacturers source from to extend the credit
term and take a big amount of raw materials in advance.

According to New York Times – “This is already shaping up as the deepest dive on record for the global
economy for over 100 years. Everything depends on how long it lasts, but if this goes on for a long time, it’s
certainly going to be the mother of all financial crises.” As the big countries direct cash to restore balance
the smaller countries like Bangladesh will get the benefit but the effect will be long term.

15
 References
1. Image courtesy - https://cpd.org.bd/tackling-the-economic-fallout-of-covid-19-dr-fahmida-khatun/
Published in The Daily Star on Monday 16 March 2020
2. http://resources.oxfordeconomics.com/world-gdp-to-fall-2.8-in-2020-exceeding-financial-crisis-
toll?oe_most_recent_content_download_id=0000021&interests_trending_topics=coronavirus 09
Apr 2020
3. https://www.cnbc.com/2020/04/08/coronavirus-recession-is-unlike-any-economic-downturn-in-us-
history.html 09 Apr 2020
4. F1 – of initial unemployment insurance claims since 2000 https://www.dol.gov/coronavirus 16 Apr
2020
5. https://www.forbes.com/sites/davidvinjamuri/2019/01/03/branding-in-a-recession-a-survivors-
guide/#3b6384d5b0e2 03 Jan 2019
6. F2 - Main Apparel Items Exported From Bangladesh
http://www.bgmea.com.bd/home/pages/TradeInformation 17 April 2020
7. F3 - U.S. GDP in 1930s https://www.thebalance.com/us-gdp-by-year-3305543 17 April 2020
8. F4 - U.S. GDP 2006-2019 https://www.thebalance.com/us-gdp-by-year-3305543 17 April 2020
9. https://www.ft.com/content/f9537538-d7a0-44e3-8e86-5cb9a984aae4 17 April 2020
10. F5 – UK Job vacancies https://www.theguardian.com/business/2020/apr/11/the-big-shutdown-
tracking-britains-covid-19-slump-in-real-time Guardian graphic | Source: Thinknum 17 April 2020
11. http://www.theindependentbd.com/printversion/details/242196 23 March 2020
12. https://www.nytimes.com/2020/04/01/business/economy/coronavirus-recession.html 17 April
2020
13. https://www.thejakartapost.com/news/2020/03/30/german-economy-set-for-significant-recession-
economists.html 30 Mar 2020
14. F6 – Top Five Largest Fashion Retailers in the Worldhttps://www.tharawat-magazine.com/facts/top-
5-largest-fashion-clothing-retailers-world/ 17 April 2020
15. https://www.fibre2fashion.com/industry-article/8240/global-apparel-market-outlook-for-2019 18
April 2020
16. https://www.forbes.com/sites/rebeccasuhrawardi/2020/03/30/collapse-of-bangladeshs-garment-
industry-leaves-its-workers-more-vulnerable-than-ever-during--coronavirus/#17ab111ff27e 19 April
2020
17. https://www.bbc.com/news/business-51500682 19 Apr 2020
18. https://www.nytimes.com/2020/03/25/us/politics/whats-in-coronavirus-stimulus-bill.html 19 April
2020
19. https://www.theguardian.com/uk-news/2020/mar/20/government-pay-wages-jobs-coronavirus-
rishi-sunak 19 April 2020
20. https://www.bbc.com/news/business-51982005 19 April 2020
21. https://edition.cnn.com/2020/04/06/business/germany-coronavirus-economy/index.html 19 April
2020

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